Liens Compared to Levies

A tax lien is a document recorded at the county register of deeds office which simply states that the individual owes the IRS the amount of money stated on the lien. If the person named sells real or personal property, that lien must be paid before the seller can convey clear title to the property. Thus a lien is a passive form of collection. In actuality, a tax lien arises when the tax is assessed. However, it is effective against third persons only after it is filed in the public records. On the other hand, a levy is an active collection technique. The two most common types of levies are a levy against wages and a levy against a bank account. If wages are levied, the employer withholds the required amount from the employee’s paycheck and sends it to the IRS. This continues for each paycheck until the levy is released. If the bank account is levied, the bank freezes all of the funds in the account on the day the levy is served and sends that money to the IRS 21 days later. Any money coming in to the account after the levy day is free and not part of the levy. Before either of these levies can occur, however, the IRS must notify the taxpayer of the impending levy by certified mail and give him 30 days to respond. If the taxpayer has an alternative solution, such as an Offer In Compromise, Installment Agreement, or he thinks the tax amount is wrong, he can file for a Collection Due Process hearing. This will stop the levy and give the taxpayer time to prepare his alternative solution and discuss it with an appeals officer.